M&M's tractor business turns more fertile than SUVs, CVs

M&M’s tractors may not be as visible as its sports utility vehicles (SUVs) which vroom on Indian roads, but it is the tractor that is driving the auto major’s profitability while being a smaller contributor to revenues. As things stand this year, tractors could further expand its share in both revenue and profitability. This is because tractor sales, driven by prospects of a normal monsoon, have grown at 11 per cent this year against a decline in passenger vehicle sales.

The company’s profit before tax from the farm equipment segment (primarily tractors) rose 31 per cent last year to Rs 2,562 crore while the same from automotive (SUVs & commercial vehicles) declined over 17 per cent to Rs 2,162 crore. Automotive segment’s profit before tax was higher at Rs 2,623 crore in FY16 when farm clocked PBT of Rs 1,956 crore. However, it is not the first time that the farm segment contributed more to the company’s PBT.

The farm segment is much smaller in size, roughly half compared to the revenues of the automotive segment (Rs 27,181 crore in FY17). However, against a three per cent growth in automotive revenue in FY17, the farm segment revenue grew 22 per cent to Rs 13,786 crore on expanding tractor sales. The company posted a 14 per cent growth in profit last year to Rs 4,050 crore and this growth is led by the farm segment. This trend is expected to continue in FY18 as tractor sales will surge due to the monsoon led demand.

“The auto sector had two major impacts during FY17 – impact of Rs 171 crore due to BS III issue and (Rs 171 crore) and an impact of Rs 536 crore due to the expiry of fiscal benefit at the Haridwar unit. If you put both of them together, the impact is more than Rs 700 crore. This broadly explains the auto segment performance,” V S Parthasarathy, group chief financial officer at M&M said in response to queries.

Mahindra India